The application of FIDIC forms of contract in a Kazakh law context

By Donna Evans2014-07-02T11:16:00+01:00

Andrey Artyushenko of Artyushenko & Partners is a Real Estate Development, Construction and FIDIC lawyer in Kazakhstan. In this article, he highlights how FIDIC forms of contract, contain a number of terms, definitions and mechanisms that do not fit into the realities of Kazakhstan legislation.He goes on to explain how it is necessary for them to be governed by special conditions, and how it can depend on the governing law of certain contracts, such as the applicable law for disputes and arbitration clauses, among others. Andrey takes us through some of them.

Structure of FIDIC forms

The structure of FIDIC forms of construction contracts suggests that the contract represents the text on one page, indicating a project name, the names of the parties and the agreement in principle of the Parties on implementation of some work. The scope of work, the name of the facility, term, total cost and payment procedure are specified in annexes to the Contract and other documentation. This approach is contrary to the laws of the Republic of Kazakhstan, since it is necessary to specify essential conditions of the contract in the contract itself. In this regard, it is mandatory to cover all these essential conditions in the contract itself, not only in annexes.

The second issue with the FIDIC structure is that we do not recommend binding the contract with the tendering documentation. All essential conditions should be strictly written in the contract, without referring to the tendering documentation.

Transfer of a construction site to the Contractor

As a mandatory provision (Sub-Clause 2.1 (Silver Book)): The Employer shall give the Contractor right of access to and possession of, all parts of the Site within the time (or times) stated in the ‘Particular Conditions’. The right and possession may not be exclusive to the Contractor. With this, the mechanism of transferring the construction site is limited to the simple signing of the acceptance certificate. However, in practice, the availability of such an acceptance certificate is not enough, and by virtue of Kazakh legislation, we recommend that the transfer of the construction site is under a separate contract (e.g. the Trust Deed). The text of such a ‘Trust Deed’ shall be part of the binding documents.

Permits and approvals

As a mandatory provision, the Contractor must arrange all necessary permits and approvals. Additional obligations of the Employer should be mentioned separately: the Employer shall provide assistance to the Contractor (upon request) in the obtaining of local permits and approvals, also in the delivery of a notice to the authorised body as to the start of the construction (provided that the permit for construction has been obtained), among others. Under Kazakh law, the obligations for obtaining construction permits and approvals, and sending notifications are the Employer’s obligations.

Time frames for receiving necessary design documentation approvals from the authorities

Bear in mind here that such procedures in Kazakhstan could take longer than usually required. In particular for parties that are working in Kazakhstan for the first time.

Consultancy fees under the White Book

As a mandatory provision of the FIDIC forms of contract, Consultancy fees tend not to be fixed or paid in one lump sum. However, for state-run companies and quite often many other companies in Kazakhstan this approach is not always acceptable (for state-run companies it is prohibited). In this regard, consultancy fees should be fixed, or at least be capped at the maximum possible amount.

The start of design under the Orange Book

The term “Commencement Date” has a reference to the provision that “The Contractor shall commence the design and execution of the Works as soon as is reasonably practicable after the Commencement Date, and shall then proceed with the Works with due expedition and without delay”. In the context of this book “reasonably practicable” means not only in terms of readiness of a phase, but also in terms of availability of natural conditions (weather, etc.) for this. For instance, making measurements at a temperature of 30 degrees below zero at a certain wind velocity is only possible at height of 2 to 3 meters above ground, and all what is above this level, can be measured only after the weather gives such opportunity.

Employer’s Personnel terminology

The term “Employer’s Personnel” (in the Red Book): means the Engineer, the assistants referred to in Sub-Clause 3.2 and all other staff, labour and employees of the Engineer and of the Employer; and any other personnel notified to the Contractor, by the Employer or the Engineer, as Employer’s Personnel.

This term should be translated carefully into Russian because an incorrect translation could mean that it is unlikely to meet the Labor Code of Kazakhstan. FIDIC’s concept is that the term “Employer’s personnel” does not only refer to those employed on a permanent basis by the Employer, but also those engaged by the Employer as subcontractors.

Common law clauses

Such terms like “reasonable efforts”, “applicable”, “acceptable”, are common clauses used in English law contracts that are often not commonly used or recognised terms in Kazakh law. Thus, we recommend that particular attention is made on explaining these terms to your partner in Kazakhstan to clarify in the contract text what is meant by this phraseology, as in some cases, it is better to determine these common terms in a more detailed way.

Language

Sub-Clause 5.2 (“Silver Book”) states: Unless otherwise stated in the Employer’s Requirements, the Contractor’s Documents shall be written in the language for communications defined in Sub-Clause 1.4.

It is mandatory to identify the need of the Technical, As-Built and other Documentation to be in the Russian language. In some regions of Kazakhstan, it should be in Kazakh language as well. Otherwise, there could be suspensions and delays for passing some obligatory state construction procedures and control stages. If parties have decided that documents should be submitted in two or more languages then we recommend parties identify the language of priority.

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